Archive - Oct 2011

For over a year, our premise #1 in interpreting the newsflow out of Europe has been that in the absence of actual practical ideas, and the continent's glaring inability to do simple math, the only option left to bEURaucrats has been to literally baffle people with so much endless bullshit that the general audience would be simply stunned by the possibility of an alternative that the union's leaders were all talk and absolutely no action, let alone analysis. As of today, we now know that that is precisely the case: for over a year Europe has been mouthing off hollow rhetoric in hopes that the market would just leave it alone, and that promises of promises and plans of plans would be sufficient. That plan (pardon the pun) has now failed. And so behind the scenes chaos turns into fully public panic. As the FT's Brussels blog summarizes, the only game left in town for Europe now is to push off D-Day, but not to some indefinite point in the future, like the US, but to tomorrow, and tomorrow and tomorrow, to channel the bard here. And nothing confirms better that it is all over for Europe, than the following summation of the terror and utter cluelessness gripping Europe, than the following sentence from the FT: "Just to recap, by Wednesday night there will have been nine meetings of ministers or national leaders in five days."

Hardly the apocalypse scenario that the G20 and Nicholas Sarkozy predicted, but certainly not a ringing endorsement of European cohesion and stability. If this melts up in the Sunday futures session, we fully expect it to be due to ongoing FX repatriation by French banks.

"He/she who gets out first gets out best."

Zero Hedge has the pleasure to bring its readers this extensive Q&A with one of the most prominent voices of "Austrian" economic sensibility, and foremost experts on capital markets and commodities: Diapason's Sean Corrigan, who has repeatedly graced our pages in the past and who always provides a much needed 'on the ground' perspective on his native Europe. Among the numerous topics discussed are the Eurozone, its collapse, its insolvent banks, and the EFSF as the Swiss Army Knife ex Machina; the 3rd year anniversary of Lehman's failure and what lessons have been learned (if any); how to fix the US economy; on Goldman's relentless attempts to intervene in, and define, US monetary policy; what the Fed's role should be (if any) in the economy and capital markets; his views on the Occupy Wall Street movement; his advice to an inexperienced 25 year old looking to make their way in the world; And lastly, the $64K question: what is the endgame. A fascinating must read.

Remember this from Sarkozy on Wednesday: "If there isn't a solution by Sunday, everything is going to collapse." Well, judging by the "conclusions" just released by the European Council, everything is about to collapse, because the only "solution" reached is the following: "The death of Muammar Gaddafi marks the end of an era of despotism and repression from which the Libyan people have suffered for too long. Today Libya can turn a page in its history, pursue national reconciliation, and embrace a new democratic future." This is a statement written by the Golum on the left in the picture below.

For those who need a hearty dose of laughter on a Sunday, here is Europe's version of Professor Chaos and General Disarray yapping at the Clown Summit, having finally received the first shipment of HP-12C in history, and realizing they are all fornicated.

In typical European leadership fashion, the need to speak useless words to an audience waiting for some sense of real actionable solution outweighs any actual ability to add value or say something new. What is even more incredible is that we expect the 17 (or 27) nations to agree on anything when they can't even communicate effectively internally as we see the Sarkozy/Merkel press conference perfectly overlap with the Barroso/Van-Rompuy conference. Bloomberg is reporting the headlines - which are the same old same old - and awe-inspiring in their lack of specificity and potential for total opposition in view. Grant Williams (of Things That Make You Go Hhmm fame) perhaps sums it up best: "Europe is broken and the people charged with trying to fix it are clearly not up to the job."

This, in the parlance of our times, is called massively mismanaging expectations.

Let's just say even if you were an Olympic skier, you would not want to ski on that slope...

That Europe is, and for a long time has been nothing more than one spring club loaded, and destructive Jack in the Box, just waiting to be unleashed upon the world when the conditions are most dire, is by now nothing new to regular readers: it was roughly two years ago when we presented for the first time the case of how European bank debt is not only orders of magnitude greater than American debt, but that the equity tranches is a tiny sliver in a world where one bank's assets are another bank's liabilities, and any modest write down of debt would result in a cascading domino effect which wipes out billions and possibly trillions in "book value." It is also yesterday, that we refreshed on why a Greek forced write down of up to 60% would promptly spread like wildfire and lead to every troubled European sovereign to demand the same conditions as Greece, pushing French banks (and their US proxies, we all know who they are), to the edge of the abyss because while one Greek write down of 50% may be viable, the same treatment afforded to Italy (which will become inevitable) will simply topple French banks. And putting it all together is this chart redux of who owes what to whom via the NYT. It is nothing new, and it speaks for itself.

It is painfully clear now, that in spite of months of talk, headlines, and propaganda, very few people in the EU worked on any details.  I thought, at the very least, they were working with traders, lawyers, and structurers and somehow were just getting the wrong answers.  But now, it looks like asides from the IMF, no one else was figuring out anything, they were just saying what they thought the market wanted them to say. The IMF and other countries finally realize real losses need to be taken and recognized on Greek debt.  For once, they can step back, break away from their existing thinking – the IIF’s PSI proposal – and do something that will actually work.

and her little Brat-wurst...

Buyer Beware

As the sheer mathematical certainty of the event horizon that is Europe these days is slammed at light speed into the foreheads of the European cognoscenti, we finally see some actual frustration, foot-stomping, and 'throw-your-teddy-bear-out-of-the-pram'-ness. The Telegraph reports on some choice turns-of-phrase among the leading players, our favorite being:

"It was grim. The worst mood I have ever seen, a complete mess," said one eurozone finance minister.

But it only got better from there, with several of the major movers feeling the need to express their frustration (and what is German for Schadenfreude?).

In 1932, approximately 80 years ago, 43,000 marchers (17,000 veterans) descended upon Washington D.C. The Bonus Expeditionary Force, also known as the “Bonus Army”, marched on Washington to advocate the passage of the “soldier’s bonus” for service during World War I. They set up a camp with tents to bring attention to their cause. After Congress adjourned, bonus marchers remained in the city and became unruly. On July 28, 1932, two bonus marchers were shot by police, causing the entire mob to become hostile and riotous. The government turned the U.S. military upon its citizens. Army cavalry units led by General Douglas MacArthur dispersed the Bonus Army by riding through it and using gas. Fifty five veterans were injured and 135 were arrested. Critics of the marchers described them as communists, troublemakers, and criminals. Fast forward 80 years and we have protestors setting up camp in a public square, not far from where the same exact banks that caused the Great Depression have created the Greater Depression. The biggest Wall Street banks have gotten bigger. The Federal Reserve, in collusion with the Wall Street banks, has engineered a two year stock market rally, while the average American has seen their wages decline, food and energy prices soar, home prices fall, and banks paying them .1% on their savings. Anger and disillusionment continue to build in this country like a volcano preparing to blow. Some people are angry at Washington politicians. Some are angry at Wall Street. Others aren’t sure who to be angry at. The evil oligarchy of bankers, corporate titans, and bought off Washington politicians that control the agenda and mainstream media, continue to scorn, ridicule and denigrate the middle class of America. Their financial engineering is failing. They’ve gone too far. The debt accumulation is unsustainable. The mood of the country has darkened and talk of revolution and the shadow of impending violence is growing.